"Bread and Butter" Planning Techniques for Medicaid Eligibility

“Bread and Butter” Planning Techniques for Medicaid Eligibility

Many potential Medicaid eligibility cases do not require sophisticated planning techniques. Relevant administrative regulations are referenced.

I. Hypothetical

Husband is about to permanently enter nursing home. The husband and wife have the following assets:

Residence $($30,000 mortgage) $200,000 (net of mortgage)
Bank accounts (jointly held) 100,000
Life insurance on husband
($100,000 face, $5,000 cash value) 5,000
Investments (jointly held) 25,000

Debts and anticipated debts are $10,000, which includes attorney’s fees, accountant’s fees and needed repairs on the home.

The planning goals are Medicaid eligibility, maximum preservation of assets and avoidance of loss of Medicaid eligibility.

II. Recommendations

A. Transfer all bank accounts and investments into the name of the wife for management purposes.

B. Residence should be transferred into wife’s sole name. Home should not be sold by wife until after husband is eligible for Medicaid (spouse’s cash not counted toward husband’s assets after husband’s eligibility).

C. Life insurance policy should be cashed in after institutionalization (see N.J.A.C. 10:71-4.4(b)4.).

D. After husband enters the nursing home, pay off mortgage ($30,000), debts and expenses ($10,000), cash in life insurance.

Note: The Community Spouse Resource Allowance is $65,000 (one-half total of bank accounts, investments and cash value of insurance). The amount which is not protected need not be used on nursing home costs, and payment accelerates the date of Medicaid eligibility.

E. Balance of funds used to pay nursing home costs and wife’s expenses in the community. Other possibilities are prepayment of taxes, prepaid funeral funds and general debts.

Suggestion: For alternative arrangements, see Additional Post-Eligibility Considerations, Post No. 2.



Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.


© March 2009, Post #12

Life Insurance Issues

Life Insurance Issues

A. One of the most common oversights which can delay eligibility is the failure to inquire about applicant’s (or spouse’s) life insurance policies. References to the relevant New Jersey Administrative Code citations are included.

B. While the cash value of life insurance policies with a total face value of $1,500 or less is an excludable resource (N.J.A.C. 10:71-4. 4(b)4.), the existence of a life insurance policy(s) often presents a trap for the unwary. Often an elderly client will have a small policy with a substantial cash value. If the face value of such policy (or total face value of several policies) exceeds $1,500, the cash value constitutes a countable resource. Therefore, it is necessary to surrender the policy and spend the cash value.

Caution: While a group policy has no cash value, the aggregate face amount of all policies (including group) is considered in the determination of whether the cash value(s) is an excludable resource.

Note: Another solution to the cash value problem is for the owner of the policy (generally the applicant) to borrow against the policy. While this technique would reduce the death proceeds, the cash value would no longer be a resource. Hopefully, the borrowed funds can be used to pay debts or acquire excludable resources.

1. If the face amount of a policy is large and/or the death of an applicant is near, consideration should be given to a transfer of ownership of the policy to the community spouse. Of course, the cash value will then count toward the Community Spouse Resource Allowance.

2. Life insurance on the life of and owned by the community spouse could also present a problem. That is, the cash value on such policy counts toward the Community Spouse Resource Allowance and will result in a denial of eligibility if not considered. There is no express $1,500 exclusion in the regulations for a policy owned by and on the life of the community spouse.

Note: Again, policies need not always be surrendered. As indicated above, it might be advantageous to transfer a policy with a substantial death benefit to the community spouse, particularly if death of the applicant is near.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.


© February 2009, Post #3

Methods of Payment of Medigap Insurance After Eligibility

Appointment of Representative Payee

1. Once eligibility is established, the nursing home receives the Medicaid reimbursement rate as payment. The actual amount paid to the nursing home by Medicaid is reduced by any recurring monies received by the individual such as social security and pension payments, which are to be remitted to the nursing home on a monthly basis.

2. Such payments received during any given month constitute resources on the “first moment of the first day” of the subsequent month.

3. The $2,000 threshold could be exceeded due to the lack of attention to automatic deposits of social security and pension payments to a Medicaid recipient’s checking account.

Planning Point: Once the date of eligibility is near, counsel should advise and assist the responsible family member to designate the nursing home as representative payee for social security benefits of the Medicaid recipient. Social security payments will then be made directly to the nursing home. The danger of disqualification due to inadvertent accumulation of social security monies will be eliminated.

Alternative Arrangements: If a recipient maintains Medigap insurance, Medicaid will subsidize such costs. In such case, it might be prudent not to designate the nursing home as representative payee since the recipient would have to rely on the nursing home to pay the Medigap premiums from the assigned monies. If Medigap insurance is to be maintained, the following possibilities exist:

(a) Designate nursing home as representative payee and arrange for home to pay Medigap premiums (risky).

(b) Continue Social Security payments to applicant’s account. Applicant (or attorney-in-fact) pays premiums directly and remits any excess funds to the nursing home.

(c) If pension payments can cover the Medigap premiums, designate nursing home as representative payee of Social Security, pay premiums from pension funds, remit any excess pension monies to nursing home.

4. Payments from qualified retirement plans cannot be assigned. Therefore, in the event of such payments, recipient should maintain a checking account for deposit of such funds. These monies are to be paid to the nursing home monthly.

5. At the point of eligibility or within ninety days of eligibility (the “90-Day Rule”), all joint accounts with community spouse should be terminated. The entire balance in a joint account will be treated as a resource of applicant. There should be a separate account for applicant. Also, a separate account in the name of community spouse should be the receptacle for pension and social security payments of community spouse and other monies.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.

© February 11, 2009, Issue 1